New Mexico looks to China for investment

Monday, November 27th, 2017 at 12:02am

ALBUQUERQUE, N.M. — For a few days in early October, just as the weather was beginning to gild the cottonwood leaves, 170 Chinese business professionals came to the United States with the hopes of making it big in New Mexico.

Signing a Memorandum of Understanding are, from left, Jian Zhu, Richard Buckler, HuJiebao and Pam Feather. The aim is promoting arts and culture events between China and New Mexico. (Taylor Hood/Albuquerque Journal)

The U.S.-China Business Matchmaking Summit had all the trappings of a standard international business conference: speeches by politicians; industry-specific panels; and tours meant to acquaint participants with a city they would likely not have otherwise visited. But the focus of the Albuquerque event was partnering Chinese nationals interested in investing abroad with businesses hailing from one of the poorest states in America.

“This was, by design, very much about giving New Mexico companies access to opportunities that most other states already have,” said Deborah Burns, CEO of InvestUS LLC, co-organizer of the event with Jian Zhu of the International Chinese Entrepreneurs Association.

Data from the research firm Rhodium Group shows that New Mexico has the lowest Chinese investment of any state in the western U.S. But that could change soon as businesses here increasingly look abroad for access to capital and other opportunities.

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For Doug Christian, owner of Vertical Limit Aviation training school, business is already moving in that direction. At the matchmaking summit, Christian signed a memorandum of understanding with the China-based TTFly, kick-starting discussions about training budding Chinese commercial pilots here in New Mexico.

“It’s really exciting,” he said. “It’s not a done deal, but it could be huge for the state.”

Growing interest

In recent years, currency fluctuations and a long economic slowdown have led to an outpouring of Chinese investment abroad, though that’s decreased in recent months as the government has tamped down on the outflow. According to the Rhodium Group, mergers and acquisitions of American companies by Chinese entities fell by 20 percent in the first six months of 2017 compared to the year prior. Now, Chinese businesses are looking at smaller deals that are less likely to catch the eye of Beijing regulators.

Guibing Li, left, president of TTFly, and Doug Christian, owner of Vertical Limit Aviation, sign a memorandum of understanding at the U.S.-China Business Matchmaking Summit in October. (Courtesy of Investus/ICEA)

So far, New Mexico has been a recipient of only a handful of significant Chinese-backed transactions. There are three Red Lion hotels in New Mexico; the Chinese conglomerate HNA group acquired a 15 percent stake in that company in 2015. A medicinal greenhouse in the Acoma Pueblo is being built with money from Chinese investors through the immigration program known as EB-5. The Rhodium group estimates that Chinese investment has totaled less than $10 million since 2000 and accounts for fewer than 100 jobs in the state.

And yet, New Mexico has long counted China as an important trade partner. In 2016, China was New Mexico’s third-largest export destination behind Mexico at $497 million.

Lt. Gov. John Sanchez cited that discrepancy as one of the reasons behind his June trade mission to the country, which was sponsored by the China-United States Exchange Foundation. Several members of the New Mexican real estate and tech communities have also traveled to China in recent months to look for business opportunities there.

“When it comes to doing business in China, it’s all about trusted relationships,” Burns said. “New Mexico hasn’t really been able to offer that until now.”

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The kindness of strangers

Not everyone thinks foreign investment is a good idea. In 2010, Idaho Gov. Butch Otter made an EB-5 program and Chinese immigrant investment the cornerstone of his plan to increase the size of Idaho’s economy. But he faced such backlash from his constituents, who accused him of selling out the state to a foreign power, that he was forced to back off.

Paul Gessing, president of the Rio Grande Foundation, a research group that advocates limited government, said it’s possible that significant foreign investment could create volatility in the event of a trade war.

“But the investments here are so minimal, it’s hard to imagine that happening any time in the near future,” he said. “Chinese investment really seems like a bright spot for a place like New Mexico, with all our economic challenges.”

Still, there are questions about the role of foreign investment at a crucial juncture for the state. For most of its modern history, the health of New Mexico’s economy has depended on factors largely outside of its control: what one journalist termed “the kindness of strangers.” Nearly one-third of the state’s gross domestic product comes from the government and the volatile mining sector, which includes oil and gas development.

Economic diversification has been popular political platform in recent years, but progress has been slow, in part because businesses find it difficult to grow here. At a recent conference hosted by the University of New Mexico’s Bureau of Business & Economic Research (BBER), Jeffrey Mitchell, BBER’s director, pointed out that New Mexico lags behind neighboring states, not in terms of business openings or closings, but business expansions. The number of New Mexican business contractions exceeds those of its neighbors.

Today, the state is facing an inflection point, according to Mitchell. The oil and gas industry has stabilized and the health care industry has largely absorbed the boost it received due to Medicaid expansion.

“The question now is, ‘Where does the state go on its own?'” said Mitchell. “In the past, the answer has to that has been ‘sideways.’ If we want to change that, it really comes down to addressing our principal economic challenges: education and stabilizing public finances.”

Investment from China is unlikely to facilitate that type of change. But it could address another issue at the heart of business expansion: access to capital. Charles Wollmann, a spokesman for the State Investment Council, called capital access “one of the biggest problems facing New Mexico.” He said foreign investment could be “an important part” of creating opportunities for New Mexican businesses in the coming years.

“If nothing else, foreign investment means more eyeballs on the state, which could lead other investors to learn more about what we have to offer here,” he said.

An innovative solution?

On the last day of the business matchmaking summit, the organizers declared it a success. A total of 15 memorandums of understanding had been signed: the aviation partnership; a joint venture to export beef to China; and several other agreements in the solar, manufacturing and education industries. Five more were signed over the following week.

Both Zhu and Burns said they plan to make the event annual. In his closing remarks to attendees, Zhu described the challenges that lay ahead for marketing the concept further in China.

“Albuquerque has had about the same number of Chinese-Americans for decades, and that means the Chinese don’t know New Mexico,” said Zhu. “They think it is part of Mexico. They don’t want to travel somewhere they don’t know.”

Zhu said the conference was a step toward correcting that.

In a nearby exhibit hall, tables were laden with tray after tray of egg rolls. Jim Wang, an Albuquerque resident who volunteered to translate for the event, examined one gingerly before taking a bite.

“Interesting, they don’t taste like regular egg rolls,” Wang said. He quickly added: “But they are very innovative.”

He had expected that the fried wrapper would contain the shredded cabbage and other vegetables. Instead, it had been stuffed with carne adovada, the New Mexican pork-and-chile dish.